\section{The Impact of Case Mix Adjusted Capitation Rates on Risk Bearing Providers}
\label{sec:TheImpactOfCaseMixAdjustedCapitationRatesOnRiskBearingProviders}

Flaws in capitation created a ``Case Mix Adjustment'' cottage industry. Capitation systems start with payments deemed adequate, but not excessive, for a population. The population is a mix of epidemiologically significant characteristics that influence costs. Payment-cost disparities arise for two reasons: Main factor effects when providers' portfolios differ from the population on epidemiologically relevant characteristics; and Increased PLRE variability, due to small portfolios. 

Correcting capitation rates for main factor effects through case mix adjustments, is simple, but inadequate, because small providers are less efficient insurers than $PI$. Case mix adjusted capitation rates cannot adequately compensate providers because the providers need higher Portfolio Risk Adjusted Premiums to compensate for their inefficient insurance operations. Case mix adjustments, while necessary, are insufficient corrections for providers' risks. 

Only providers who believe their costs are higher than appropriate, will request case mix adjustments, the ``Lake Wobegon'' effect: ``All Lake Wobegon providers believe their patient care costs are above average.'' Lake Wobegon providers never request reduced case mix payments. Provider initiated case mix adjustments result in inefficient increases in aggregate capitation payments, even if the original capitation payments were correct. Some successful case mix adjustments correct for inefficient insurance operations, not epidemiological differences in expected Claims Costs, so these increased capitation payments are inefficient. Even when capitation payments are perfect, for the population, individual providers are never adequately compensated for their risks because case mix adjusted capitation payments do not compensate for the increased PLRE variation in small provider portfolios. 

Worse still, provider's portfolios are \emph{almost never} random selections from the population for which capitation rates were calculated. Patient-provider matching is \emph{almost always} non-random due to geography, transportation routes, age, gender, current and prior health status, and socioeconomic factors. ``Park Avenue'' providers avoid poor patients and rich patients avoid providers in poor areas. Real insurers are statutorily forbidden from ``Red Lining'' neighborhoods, while risk assuming health care providers freely ``Red Line'' neighborhoods and patients as they select service locations, set their operating hours, and discourage undesirable patients in pre-appointment (pre-admission) screenings. Capitated providers' portfolios are \emph{almost never} random, increasing barriers to care for many patients. 
